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Why Trinity Industries Stock Popped 11% This Morning

By Rich Smith - Feb 20, 2020 at 12:13PM

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Revenue grew, earnings fell -- and that's okay.

What happened

If you'll pardon the mixed metaphor, train railcar lessor Trinity Industries, Inc. (TRN -0.57%) stock is truckin' right along this Thursday morning, up 11.5% at one point, and still holding onto a 5.5% gain as of 12:10 p.m. EST, after reporting stronger-than-expected revenue and earnings last night.  

Heading into fourth-quarter earnings, analysts had forecast Trinity would earn $0.31 per share pro forma, on revenue of $808 million. As it turned out, Trinity earned $0.35 per share (again, pro forma -- more on that in a second) on sales of $851 million, beating expectations.  

Train rail cars in the snow

Image source: Getty Images.

So what

The news wasn't all great. Trinity's vaunted $0.35 per share in non-GAAP (adjusted) EPS -- the pro forma number -- overstated actual GAAP profits. The company's EPS under generally accepted accounting principles (GAAP) of $0.18 was actually a 5% year-over-year decline. That's despite revenue growing 16% year over year.

Still, the revenue growth alone was nice to see, and the earnings did come in stronger than Wall Street had predicted. More importantly, for the year as a whole, Trinity managed to grow sales 20% to $3 billion, and grew its GAAP earnings from continuing operations 56% -- to $1.09 per diluted share.

Now what

Looking ahead to fiscal 2020, Trinity forecasts that it will earn between $1.15 and $1.35 per common diluted share on revenue of between $2.5 billion and $2.7 billion. That would be a steep drop-off from fiscal 2019 sales, of course, but about a 15% increase in earnings.

With Trinity stock now selling for about 21.5 times earnings, I wouldn't call the stock cheap on 15% forecasted earnings growth. But after factoring in the 3.6% dividend yield, I wouldn't call Trinity expensive, either.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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